All-stock is inclined to have the higher variance/volatility i.e. within a entire extended period there will be sub-set periods of more extreme best, and worse cases. Concentration risk is a major risk factor, easily reduced by diversifying. Common advice is not to hold all-stock, but 75/25 instead. Same might be said for all-gold, better instead to hold 75/25 gold/stock. Diversifying to hold both of those in equal measure = 50/50 stock/gold. Which will have elements of low/inverse correlations, in a period when all-stock struggled to yield income, all-gold might do well and vice-versa. In a period when all-stock might have barely achieved a inflation pacing total return additionally drawing a income would be pure eating capital, if over the same period all-gold comfortably supported a 8% SWR then a overall 4% portfolio SWR would have been supported by having drawn all income from the better performing choice and having left the poorer performing choice as-is.Is a 100% stock / percent of portfolio withdrawal strategy really a reasonable approach to longer time horizons?
Furthermore, backtesting using a great market outcome, when it was in ascension, is less inclined to sustain the same rewards once it has matured and/or have even potentially entered into relative decline (other greater markets elsewhere). The US was one of the greatest markets over the last century, over the next century ??? Even if more mediocre that can slide the Y axis scale by a couple of percent.
Statistics: Posted by seajay — Sat Apr 13, 2024 4:48 am — Replies 92 — Views 11431